National Grid wants Ofgem to retain incentive-based regulation

By Josh White

Date: Friday 15 Mar 2019

(Sharecast News) - National Grid confirmed on Friday that it had submitted its response to Ofgem on the sector specific methodology consultation for 'RIIO-T2'.The FTSE 100 company said it believed the overall framework proposals set out by the regulator in the sector specific consultation were "a step in the right direction", but added that it was concerned that as currently set out, the proposals would not bring about the change consumers needed.

It said its vision was of an energy future where bills were kept low for consumers, energy was decarbonised, and innovation was encouraged, which together "supported the growth and prosperity" of the UK economy.

"In our response we outline the importance of a framework that fairly reflects the risk-return balance for consumers and investors alike," the National Grid board said in its statement.

"Specifically, we show that rectifying the individual errors in the current proposal, taking a balanced view of the full suite of evidence and removing the unjustified 50 basis points outperformance adjustment results in an allowed return on equity of 5.5% [on a] real RPI basis.

"We also highlight that incentive based regulation has driven at least £15bn of long term consumer value in electricity transmission over the last 25 years and encourage Ofgem to re-embrace the concept of incentivisation to deliver innovation and efficiency."

National Grid said the changes it proposed were in the long-term interests of consumers, and would better enable the transition to a "secure, resilient, low carbon energy" system.